Posted by Joshua on Friday, November 13th, 2009

Omar S. Dahi Critiques Ehsani and “Neoliberalism”

With an estimated 40% of the total population of 80 million Egyptians living under the poverty income line of $2 per day, despite five years of strong economic growth in Egypt, many people depend on heavily subsidized bread provided at distribution centers and bakeries across Egypt. When prices doubled in early 2008 because of a variety of inflationary factors, even more people relied on the subsidized bread than normal, forcing Egyptian leader Hosni Mubarak to convene emergency cabinet meetings and even to order the army into action baking bread for the country’s poor. Egypt’s goal is to cut the proportion of people living on under $1 a day to 12.1 percent by 2015, from 20.2 percent now , a U.N. document said. Between 2000 and 2005 the absolute poverty rate rose to 19.6 percent from 16.7 percent of the population. Poverty is widespread in Egypt, affecting 40 percent of the population, and there are deep pockets of poverty. During 2000–2005, absolute poverty increased, but there was a reduction in the number of near-poor, leading to a decrease in the ‘all poor’ ration. —Arab Republic of Egypt Poverty Assessment Update, World Bank, 2007

According to arguments made by Ehsani on this blog, and elsewhere by other like-minded scholars, government officials, business people, and private citizens (henceforth the neoliberals), the solutions to the failures of the Syrian economy are straightforward. Decades of socialist state led management have resulted in widespread developmental problems. Aside from the clear failures of the State Owned Enterprises (SOEs), a culture of handouts, a stifling of private initiative and entrepreneurship, and rampant corruption mean that the current economic structure has reached a dead end and must be dismantled. An opening up of the economy, coupled with a structural shift from state-led to private sector led development, as well as the lifting of barriers for private initiative domestically as well as trade and capital flow barriers externally is the solution. This is a painful process: “The Baath has been in charge of economic policy for over 40 years. Undoing the damage caused by extensive reliance on subsidies amid a population explosion and persistently weak economic growth will not be easy.” Various iterations of the meta-narrative include mystical effects of openness, such as an unearthing of an entrepreneurial spirit that lays latent inside Syrians who, if only given the chance, can prosper through their own initiative. This spirit too has been crushed, but it can be revived, if only the government would get out of the way. Indeed, casual observations and empirical evidence from Syria seems to support the criticism mentioned above. However, does the trinity of deregulation, liberalization, and privatization hold the promise of rapid social development and prosperity in Syria? In short the answer is: no.

The neoliberals enjoy mocking defenders of state-led development as anachronistic remnants of “old-thinking.” However it is the neoliberals themselves who are stuck in a time warp. The comments by Ehsani seem like World Bank literature in the late 1980s or early 1990s. His (and others) discourse ignores all the changes in both the global economy as well as development theory since the late 1990s. It is true that starting in the 1980s (after the debt crises) and early 1990s (after the collapse of the Soviet Union), there was a full-scale attack on the role of the state in development by multinational institutions (World Bank, IMF, and after 1994 the WTO) as well as U.S. and Western governments. However while these had been deaf to any objections at the time, the glaring failures of their advocated policies, as well as the success of countries with heterodox economic policies have become too difficult to ignore. The neo-liberal “model” has failed. Serious work in development today is to figure out how to bring the state back into development and not the reverse. I am not referring only to infrastructure, such as building roads and bridges, targeting health care, or education. The goal must be for a meaningful industrial policy, as hard as it is for some to see how this particular state can do so.

There are three main reasons why: 1) aside from a few exceptions, no currently wealthy country (including Western Europe; North America; Japan) has done so without substantial and long-lasting state intervention in economic development and direct protection and promotion of national industry; 2) the newly industrializing countries, including the so-called Asian tigers and certainly China and the emerging South American power Brazil have used even more direct and varied methods of state intervention; 3) countries which have closely followed the neoliberal path have witnessed disappointing results in economic growth, but more importantly have also been subject to increasing inequalities, social fragmentation, and periodic financial crises.

The first argument is simply historical: no country in the world has successfully managed sustained levels of growth and human development through free trade and free markets. All countries that are now rich, including the industrial powers of Western Europe, North America, and Japan as well as the newly emerging countries such as the so-called Asian tigers (South Korea and Taiwan, Singapore) have become rich through extensive and persistent state intervention to promote industrialization (the oil-rich low population countries are a different story of course) . In fact the extent of state intervention in the late industrializing states mentioned above has been much deeper and varied, using a wide variety of carrots and sticks measures. The main defense for the claim I just made can be found in various sources, but I will just name two: Alice Amsden’s The Rise of the Rest, and Ha Joon Chang’s Kicking Away the Ladder. Chang concentrates on protectionism and state intervention while Amsden demonstrates the mechanisms used by the late-industrializers to develop. Among other factors, the most successful countries were a) those with more equitable land and income distribution, achieved through state intervention, b) those who decided to “make” technology domestically and rather than “buy” or simply import it and used domestic savings or bilateral loans to finance development rather than foreign direct investment, c) those who successfully enforced a reciprocal control mechanism of government protection in return for monitorable performance. On the other hand, countries that underwent rapid (trade and financial market) liberalization, deregulation, and privatization have witnessed disappointing results. There is a depressingly large literature on this, documenting, among other aspects such as lower growth and increased inequalities, the periodic crises following capital account liberalization (Mexico 1994-95, Turkey 1994, 2000-2001; Argentina 1995, 2001; Russia 1998; South East Asia 1997-98; Brazil 1999)[1].

However the process of liberalization in Syria has facets other than the increased inequality and levels of unbalanced regional development. There is also a process of social marginalization of the interests and concerns of less-desirable constituencies who do not fit the image of a “modernizing” Syria. Even on the level of discourse, the focus is shifting away from solidarity with the working and peasant class and the focus on the prospects for personal enrichment. Rather than programs like“مع العمال” or “مع الفلاح” we have “كيف جمعت المليون الاول”. Rather than focusing on, say the problems facing peasant women in the fields performing back breaking labor 10 hours a day, we have the stories of well-heeled westernized urban youth who apparently love the night life as much as any of their counterparts in the West. The normalization and legitimization of massive monetary gains in various media and the exclusion of the peasants and the poor from the national social space not only allows an uninterrupted success story to emerge, unhindered by actual social reality, but also has the effect of changing the aspirations of an entire sector of middle class and working poor who have no realistic chance of achieving the same social status, and try to bridge this lack of ability through conspicuous and unproductive consumption. This will likely exacerbate rather than mitigate social cleavages.

The discourse of ‘entrepreneurship’ is also key here, often repeated by Ehsani. Here again, Syrian neo-liberals did not invent this, but draws on thirty years of a bourgeois utopia promoted by the World Bank and other institutions (though it has its origins earlier). In this utopia everyone is an entrepreneur, everyone wants to start a business and work for themselves. This not only provides an excuse for state withdrawal from development, but also hides a key historical fact since the emergence of capitalist development: most people do not want to be self-employed and for a very good reason. The average rate of return from self-employment is low and risky. What most people really want is to be employed as wage laborers with job security. If entrepreneurship has a role (which it does), it must be subsumed within a larger developmental model whereby entrepreneurs are responding to the ‘right’ incentives. After all, both the venture capitalist and the street peddler are entrepreneurs.

Finally, there is the fetishization of the word “reform,” giving it an independent existence outside of space and time. The problem is that Ehsani and others (including some Western scholars writing on Syria) suffer from what Dani Rodrik calls as “the reformer’s conceit” which is : we know what the right reform policy is, but special interests and politics are preventing. Only in this mindset do we see crusading free traders fighting the archaic and parochial state apparatus who can’t see beyond their noses. So let me be clear: there is no such thing as reform.

Reform in all countries is a socially constructed process, shaped by the strength of social forces to suit their interest. The “promised land” the neoliberals point towards, if only we’d listen, is a fiction. What they’re advocating is an illusion, a myth which, in the name of its pursuit provides an avenue for the powerful and well-connected to bend the political economy to their own interests, as it has happened elsewhere near and far (from the homeland, that is) and is happening now. To make it clearer, there is no evidence that the ‘reform’ Ehsani advocates will lead to the elimination of corruption, patron-client networks, etc. etc. The more likely outcome is that the state simply safeguards the interests of a different set of clientele, with “corruption” and “hand-outs” going in different directions than earlier.

So what is the appropriate model for development? The lessons mentioned above are quite clear. That said, I do not view it as my role necessarily to “spell out” what path Syria should take. But I know my role should not be as a cheerleader for a policy that is likely to lead to cataclysmic results, and that has been tried and failed everywhere. Our role should be to continue to insist on the inclusion and empowerment of weak and under-represented social groups (such as peasants and workers in the informal economy) who are most vulnerable during a process of rapid change. Second it should be, when possible, to draw upon the positive lessons being formulated in other countries. Here I mention in passing Venezuela and Bolivia who have made rapid progress and social indicators through empowerment of previously marginalized groups, and direct targeting of illiteracy, poverty, and gender inequalities.

Of course there’s much more to the neo-liberal project than just removing the role of the state from playing a leading role in development. Once the population is re-configured as a “burden on the state,” [as it has in the official economic team’s discourse] every form of social spending is up for elimination and it won’t be too long when health care and education which until now have been thought of as rights also turn into privileges to be subjected to the logic of markets. Or maybe then Syria will have finally arrived: a nation overflowing with entrepreneurs.

Omar S. Dahi, Assistant Professor of Economics
Hampshire College odahi@hampshire.edu
His Ph.D. is from the University of Notre Dame, Indiana. His research and teaching interests are in the areas of economic development and international trade, with a special focus South-South economic cooperation, and the political economy of the Middle East and North Africa. See this article: The Middle East and North Africa by Dahi and Demir.

[1] I will summarize a broad literature, but you can go to the following sources for more information. On capital account liberalization: L. Taylor 2000. “The Consequences of Capital Liberalization,” Challenge; 1997. “The Revival of the Liberal Creed,” World Development. G. Epstein, ed. 2006. Financialization and the World Economy, Edward Elgar. On theoretical and empirical evidence on trade liberalization, globalization, and growth see: Darity and Davis 2005. “Growth, Trade, and Uneven Development: a critical survey”, Cambridge Journal of Economics. D. Rodrik and F. Rodriguez. 2001. “Trade Policy and Economic Growth: A Skeptic’s Guide to the Transnational Evidence,” Macroeconomics Annual 2000. Milanovic 2003. “The Two Faces of Globalization: Against Globalization As We Know It, World Development. On new thinking in development see: Dani Rodrik. 2006 Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank’s Economic Growth in the 1990s: Learning from a Decade of Reform, Journal of Economic Literature. H.J. Chang and I. Grabel 2004. Reclaiming Development: an alternative economic policy manual. Zed Books. On historical experiences of now rich countries see: H. J. Chang, 2002. Kicking Away the Ladder: Development Strategy in Historical Perspective, Anthem Press, and 2008. Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, Bloomsbury Press.; and A. Amsden 2001. The Rise of the “Rest”: Challenges to the West from Late-Industrializing Economies. Oxford University Press.

Ehsani Replies

Last week, Dr. Landis shared with me a brief note from Mr. Dahi. In it, the assistant professor in economics wrote that he felt compelled to respond to the recent statements that I made in support of Mr. Dardari’s economic reform agenda as he took heavy criticism from the new head of the state planning commission.

My response was to ask Dr. Landis if he could convince Mr. Dahi not only to expand on his note but to also make sure that he offers his solutions to the challenges facing the Syrian economy.

The good news is that Mr. Dahi did expand on his critique of my writings as the fine note above illustrates. The sad news is that he offered no real solutions when he wrote:

“I do not view it as my role necessarily to spell out what path Syria should take”.

To be sure, Mr. Dahi’s note is organized, professorial and well meaning. Most readers are likely to be attracted to its concerns for the “working and peasant class” and its criticisms of multinational institutions, U.S. and Western governments as well as “conspicuous and unproductive consumption”.

The note pits “neoliberals” where I seem to belong against “defenders of state-led development” where Mr. Dahi’s heart lies.

The most telling and remarkable quote from Mr. Dahi’s note is the following:

“Most people do not want to be self-employed and for a very good reason. The average rate of return from self-employment is low and risky. What most people really want is to be employed as wage laborers with job security”

Coming from an Assistant Professor in Economics, this is a shocking statement.

Of course, I would myself love to have a job that pays me with no risk. I would love it further if it came with a generous medical and pension plan. Free coffee and breakfast in the morning to go with this secure job would be fantastic.

But who is going to pay for it?

If Mr. Dahi is right that “most” of us would want just such a job (I know that I do), we must find a sucker that is willing to pay for our risk-free salaries and benefits and also our retirement.

Well, that is easy. Let us ask the state to be our friendly employer.

This is precisely what the Syrian government has done for the past 40 years as they got into the business of running 250 constantly losing businesses. Mr. Dahi and his supporters keep pleading with us for time and patience before the state-led sector miraculously turns around and suddenly prospers. If we just agree to reform the system one more time. If we just reorganize the way in which the sector is managed one last time, profits will flow and we will all be one big happy family. The working and peasant class will no longer be marginalized looking from the outside. Those conspicuous and unproductive consumers will no longer “exacerbate social cleavages”.

Mr. Dahi claims that countries which have closely followed the neoliberal path have witnessed disappointing results in economic growth. He offers the examples of Mexico 1994-95, Turkey 1994, 2000-01; Argentina 1995, 2001: Russia 1998; South East Asia 1997-98; Brazil 1999. He of course conveniently forgets to talk about where these countries are today precisely because they followed and stuck to those “neoliberal” policies. Brazil has seen so much in capital inflows recently that it imposed a tax on new capital coming in to prevent its currency from appreciating further. Its equity market is up 73% in Dollar terms and 132% in local currency this year alone.

Defenders of state-led developments are more concerned about “income inequalities, social fragmentation and periodic financial crises” than economic growth. The size of the cake is not important enough to their thinking so long as we cut it as equally as we can. Hugo Chavez has squandered his country’s vast natural resource revenues to promote what Mr. Dahi supports as the “empowerment of previously marginalized groups”. My thoughts on this experiment were detailed in a dedicated post here on this forum.

Sadly, Syria is not blessed with substantial oil revenues. Any spending that the state embarks on in the shape of subsidies and/or expansion of the public sector must be financed through tax revenues, borrowing or printing of its currency. As none other than the country’s own Prime Minister recently remarked, how many electricity generating grids, irrigation projects and roads and highways could the country have built if it were not for the subsidies that were spent on those that did not deserve it or which have gone to the benefit of the smugglers.

Unless economic policy delivers real economic growth that matches the country’s potential growth, unemployment will rise, standards of living will drop and sooner or later, the state will run out of money to finance socialist projects.

Potential growth is defined as labor force growth plus productivity growth. In the case of the U.S., potential growth is 3%. Unemployment will rise if the economy grows at 3% or less. In the case of Syria, most estimates put the country’s potential growth in the range of 6% to 8%. As Syria’s young population grows, those entering the labor force will accelerate. Syria’s number one economic challenge is create close to 300,000 jobs annually to help absorb those entering the labor force seeking employment.

Syria’s consumers suffer from low purchasing power and lack of personal credit to keep powering consumption much further. Imports are already high and are unlikely to subside hence continuously subtracting from GDP. The Government is already burdened with an expensive subsidy program, low tax revenues, lack of other sources of funding and constantly having to plug the hole in its money losing enterprises. This leaves private Investments and exports to carry the load.

For private investments to increase, interest rates, taxes and red tape need to be reduced. The government monopolies over certain businesses have to be dismantled so that the private sector fills the void. In the past, I offered the tire, beer and bottled water industries as examples. There are many more. For exports to increase, the value of the Syrian Pound has to become more competitive. Electricity has to be more widely available. Tax and rebate incentives to exporters must be offered.

No one should be duped into thinking that this process will be easy and painless. You cannot undo 40 years of misplaced economic policies and expect no pain. Regional and global competitors have had a huge leg up on us already. The leadership must explain to the public that this transformation is likely to be hard on a large segment of the society. The quicker the private sector finds it profitable to invest and grow, the faster they will increase employment and income. Government policy must make it easier for private entrepreneurs to make money by assuming risk. After all:

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Adam smith realized this back in 1776. The difference between Mr. Dahi and me is that I agree with the above 233 year-old quote. He does not. His prescription is the same outdated policy of state-led development but that can now expand into a “meaningful industrial policy”. Regrettably, his note does little to explain how the outcome will be different this time around.

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Comments (58)

Advocating for private investment and moving away from the failing state-run industries is fine, but doing so without any state intervention and by completely opening up the Syrian market to foreign goods is a clear recipe for disaster. Ehsani, what you fail to mention about the relative success of the above countries who pursued a “neo-liberal” economic model, is that in fact there was heavy state intervention in implementing that model. It wasn’t a free-for-all open market policy, but rather a mixed policy of a more free market combined with import tariffs and other protectionist measures.

Moreover, the most successful stories, such as the Asian tigers mentioned by Professor Dahi, are those countries who used protectionist measures to encourage their local industries. Simply opening up the Syrian economy to foreign competition is going to kill Syrian industry. It is impossible for newly-developed Syrian industries to compete with European, American, japanese, or even Chinese established industrial products. This will lead to the collapse of Syrian industry in general and turn the country into a consumer state, falling into heavy debt, and without the ability to create any real jobs. The only ostensible “positive” that neo-liberals will be able to point to is the shallow facade of modernity that will manifest itself, as it does in Lebanon, with the wealthy donning western apparel, utilizing western cellular phones, and riding in western automobiles.

In the end, the name of the game is PRODUCTION. The economy has to be organized on a productivity basis if we are to transform Syria into a modern, developed state. This means that we have to determine how best to maximize our productivity by having the state involved in implementing protectionist measures, at least temporarily, in order to encourage local industries, while also investing, at least partially, in those industries in order to help them take off. Otherwise, if we pursue a model of a completely free market system I fear that the Syria economy will collapse and the income gap will only grow to dangerous levels.

The Syrian market is already open to foreign goods thanks to free trade between Arab nations and now Turkey.

Have we not had enough of protectionism? The country used the “himaye wataniye” policy for decades to terrible results. Local producers were insulated from competition. They relied on stuffing the Syrian consumer with inferior products and services who had no option but buy them. Once foreign competition was allowed, the local industry collapsed under the weight of inefficient and outdated technology.

The notion that productivity can be augmented through a bigger role for the state is a fallacy and flies both in the face of logic as well as history. Indeed, state-led industries are by their very nature unproductive. You are calling for more state involvement temporarily? Is 40 years temporary enough for you?

Do you really think local industrialists would want the state to partner with them? We have also tried that and the results are all out there to see. The Syrian economy will not collapse but prosper when the private sector is unshackled from over-regulation, red tape, taxes, high interest rates, overvalued currency and an overbearing government sector. Cut out the fear mongering. The income gap that exists today is because the lower income group makes too little as a direct result of a weak economy and a massive state sector that can only afford to pay them $200 a month. If a gap exists, it is because those in the bottom make too little rather than those high up the income stream that make too much. None of what you advocate helps. The proof of the pudding is already there. After four decades of trying exactly what you advocate, 30% of the country’s population is under the poverty line. Running electricity and water are a rarity in the big cities. Corruption is rampant thanks to unbearable salary levels.

You are creating a causation that is fallacious. The failure of the Syrian economy, due to corruption, inefficiency, misuse of resources, and misallocation of funds, is not the result strictly of government involvement, but rather because of the WAY the government and entire political system is run in Syria. Again, I would challenge anyone to point me to any successful economic story that did not involve some level of government intervention, regulation, and protectionist measures.

To argue that merely opening the way for private investments is going to solve all of Syria’s problems is entirely illogical in my opinion. Corruption will still be there, favoritism will still be given to some companies over others depending on where the interests of the powerful forces lie, and Syrians will continue to suffer from an inefficient economy crumbling under the mismanagement of the entire country. Lebanon has been opening the way for private investments for sometime now, and corruption, inefficiency, and economic backwardness is still rampant there.

Moreover, I never argued that there should be absolute import bans, which I completely oppose. However, some form of protectionism needs to be undertaken in order to help Syrian industries grow. The protectionism used by the Syrian state previously was completely arbitrary and had nothing to do with encouraging or supporting local industries, and that’s why it was disastrous. But to argue that because previous protectionism was bad then we should have no protectionism whatsoever is utterly nonsensical.

Protectionist measures should be balanced and based on how we can maximize our productivity. This means that we have to study, examine, and determine what we have the potential to produce successfully and invest in such production and protect it until we are able to successfully compete with states who have more developed industries of the same product. I am not advocating for blanket import bans, but for intelligent, studied government regulation and involvement that will lead to increased productivity and in turn a better economy with more jobs for Syrians.

Simo , i like to know what you think , Ehsani , I mostly agree with you , the experience that we had in Syria in the last 45 years makes me very worry about the government doing all the planing , there is a rule for the government and that is in my opinion is to do the things that the private sector can not do , like roads , Airports , seaports , railroads , continue to manage the industries that are needed for the essential welfare of the Syrian people like the sugar factory in Homs and the cement factory , weapon industry and other industries that are important to national security , the other thing the the government should do is to provide financing to the private sector and share in the revenue from taxation ,
The problem with protection is not it’s intention but that it makes the Syrian people pay more for inferior products and for products that are hard to find , Syria can allow imports and have tariff that will make imports more expensive ,

letting people invest and produce can not be but good for Syria , Syrians do not lack imagination or risk taking , what they lack is faith that government will leave them to make as much as they can if they play by the rules and pay their fair share of taxes ,

Doing all that does not mean that the Syrian government should ignore the poor or the disadvantages on the contrary , the more the Syrians make the more revenue the government will get and the more they can target help the poor and the needy , not everybody , the rich in Syria can go the US and the EU and pay free market prices , they can do that in Syria while the government can help the needy through coupons or food stamps .
About being employed or working for ones self , actually working for ones self is the only way to stay employed as working for others makes you open to being fired , self employment has a very different feeling of self worth that employment does not provide.what is more important to self worth is employing others and the feeling that you are taking care of them and their families , that they are able to pay their mortgages , sending their kids to college because of the business that you bring .employed people can provide for themselves and their immediate family , only self employed people can take care of their families , and their community and that is a feeling that can not be underestimated .

Government regulation is important in every economy, even capitalist ones. Adam Smith himself argued for anti-trust laws for example.

This debate is about making a choice between state-led development where the public sector is the dominant producer, employer and user of resources versus having the private sector dominate an economy through a free market system where the government regulates and uses taxes and incentives to promote certain industries over others.

Does it make sense for the government to be making biscuits, tires, glass, beer and bottled water (at a loss) while local producers are excluded from the industries that the government participates in?

In Syria private hospitals are much more respected than public hospital, The art industry(T.V. Series) where goverment interfere less is florishing. while agrarian reform has been a failure,nationalization of industry by Nasser stifled investments
Nour mentioned Lebanon, Lebanon is very small state and has been stricken by sectarian fight,it is not a good example.

Comrade Dahi, I agree with your statement “Most people do not want to be self-employed and for a very good reason. The average rate of return from self-employment is low and risky. What most people really want is to be employed as wage laborers with job security”

Actually, even more i think most people would rather never grow up,stay at home, and have their dad give them an allowance.

I think that there is some misunderstanding of Prof. Dahi’s comment regarding “who is your boss” theory.

Despite of the excessive exultation of self employment here in the US, most of the people any one of us expects to encounter on daily, or even hourly basis, do work for someone. It is not less prideful, nor less dignified to work for someone. It is what the absolute majority of us do and I find it offensive to consider those of us who do not “own” our own business as lazy. In fact, self employment is oversold, especially in uber-capitalistic societies primarily to allow the conversion of employees, to whom the employer owes certain benefits, into private contractors despite of the silliness of such concept for many a job.

Now, how can any business that produces tangible products grow and how can capital accumulate if all of us are to be self employed. This is none-sense. Doctors, may be, engineers, many but not a majority, lawyers, certainly, but how can a nurse be self employed unless we revert back to midwives days.

While most small businesses signify and dignify self employment, they too must hire someone for the business to survive, compete, and grow. So to all advocates of the dreams of richness that can come from being your own boss i say, congratulations on your courage, but do not dismiss the rest of us as any less than you are, any business is worth nothing without those who work for its owner. Even the owner is in fact in his/her customers’ employ.

Ehsani,
Could the US have ever climbed out of the great depression without massive protectionist policies that followed. Even today, the stimulus bill that is responsible for putting the break on the economic disaster caused by Randyan economic theorists has a lot of provisions favoring US industries and businesses. Every penny the US spends on scientific research, be it in electronics, material science, information technology, medicine, or bio technology is a protectionist measure and a subsidy. When the national research council convenes a committee to identify research priorities in engineering, medicine, or any other field, it is basically identifying areas to improve the relative advantage of US. Based on these reports, congress pours out money into these priority fields, which are rather sensitive to economic condition.

While protectionist policies may be counter productive in countries that have diverse industries, and where protection of more expensive domestic product (say steel) may have a ripple impact on other vibrant industries (say cars) by making the price of producing the secondary product more expensive, countries that have nascent industries must look at this from a different perspective.

To many developing countries, the country-to-country comparative advantage theory, which is one of the fundamental tenets of free trade, collapses in the presence of multi-national mega-corporates that enjoy selective aggregation of the comparative advantages from many countries. To most developing countries, the only comparative advantage would revert to resource extraction, excessive reliance on raw material, and occasionally, cheap labor.

There is no doubt that state owned industries must eventually be converted into privately, share holder owned companies. But I believe that one must distinguish between privatization and globalization.

I think the clothing manufacturers benefited very much from protectionist measures over the last 20 years or so as the quality and variety of local products are a thousand times better than they were when imports were made difficult and everyone wanted smuggled stuff. The industry is governed with a relatively light touch and taxation is bearable.

Local manufacturers export their clothes to various nearby countries. I’m told that in many cases the sector has also been able to fend off Chinese competition. Would they have been strong enough without protectionism and the government’s promotion of manufacture over import?

After four decades of trying exactly what you advocate, 30% of the country’s population is under the poverty line. Running electricity and water are a rarity in the big cities. Corruption is rampant thanks to unbearable salary levels.

Well, how much of the US population live under the poverty line despite of decades of “free trade” and low governmental interference?http://en.wikipedia.org/wiki/Poverty_in_the_United_States
Before it was about about 15 percent of the population and after this collapse of that idiotic “financial industry period” it will be much, much higher.

Running water problems in cities is a poor example for the benefits of the “free economy”. Around the world the water delivery is done mostly using the society owned “structures”. A private competitive model simply doesn’t work in that “field”. Let us assume that in a major city would be given the water delivery monopoly to 3 private companies so that each gets one third of the city. Company A would built an excellent delivery system with cheap prices, company B would built a minimum pipe system with maximum water prices and company C would build nothing but sell water with astronomical prices from tankers. The consequences would be that company C would be enormously profitable considering the needed investment, B profitable and A would need constantly new capital to build the new pipelines, water purifying and treatment capacity and its profitability would be negative or at best modest. On the city level the wealthy and industries would move to the A’s area and the poor would have to stay on B’s and C’s area and pay most of their income to water.

Professor Dahi is completely right that not a single country has risen among the wealthiest countries without protecting the own markets, building industrial capacity and infrastructure in regulated environment. EU countries and USA jumped to the “free trade era” only when their “packet” was ready for that.

Surely Syria needs fast to improve its economical situation and basis, but the notion that it can be best and fastest done by the utopia of neoliberalism offers is based on no real historical evidence. Syria needs first political system reforms, then a functioning legal system and national plan how to move forward. Surely the old Nordic social-democratic “example” would produce a better foundation than the a ultra-capitalist dream-world (which in reality doesn’t exist anywhere) framework.

Emeritus professor Agnus Maddison has a on his pagehttp://www.ggdc.net/maddison/
an interesting database (Statistics on World Population, GDP and Per Capita GDP, 1-2006 AD) in Geary-Khamis dollars. Syria’s figures are surprising good using that measurement “tool”.

——In Syria private hospitals are much more respected than public hospital, The art industry(T.V. Series) where goverment interfere less is florishing. while agrarian reform has been a failure,nationalization of industry by Nasser stifled investments

Of course the private hospitals are more respected than public hospitals. So is Rolls Royce compared to a present days T-model Ford. But the essential question is that can a privatized hospital system ever provide affordable healthcare for the whole population, which in the end is one of the main goals for any civilized government. The answer is no it obviously can’t. The US mostly privatized healthcare system is twice as expensive (over 16 percent of the GDP) than the public healthcare systems in Europe (about 8 % of the GDP). USA was on place 37 in WHO’s healthcare rankings (2000).

Comparing a super equipped private hospital to a more modestly equipped public hospital is as “insane” as comparing a private Michelin 5 star restaurant to a factory’s or school’s canteen.

A state with good public school and free higher education system can produce a skilled labour force which is primary demanded for an industrial state. Much better equipped private schools and universities can educate only a tiny portion of the country’s population. There are numerous fields in a society where the private sector doesn’t provide no real broad solutions.

It is also worth discussing what private enterprise actually means. Is a agricultural conglomerate like Smithfield Foods Inc better than 100.000 smaller farms and meat producing companies? Surely it is more productive (= less people employing) than the less centralized option. Or the example of Wall Mart. Would Syria be a better place for Syrians if Wall Mart could build there next year 15.000 new markets? Or would slower a domestic solution be better?

Ehsani’s reply fails to respond to the substantial points about how countries have developed historically. Whether or not the policies he advocates might in some instances be valid, he overlooks the social reality in which they are implemented. Even if the neoliberal wishlist were faithfully implemented, it would do little to change the underlying problems within the Syrian economy. Egypt, not Brazil, is a much better indicator of what would happen to Syria if ‘reform’ was adopted; see http://www.businesstodayegypt.com/article.aspx?ArticleID=8682 for what a failure that’s been.

Ehsani is so dismissive of state-owned enterprise (SOEs) that he practically poses it as a rhetorical question, as if ‘who could possibly think state-run enterprises’ should do anything. I refer him to China, S Korea, France post-WW2 and almost any developed country for examples where SOEs have been vital and dynamic parts of the economy (if he’s not read Chang, he really should). It’s interesting he mentions Brazil as a shining example, one of the most unequal countries in the world. Despite having a GDP per capita around 3 times that of Syria, 18% of the population live on less than $2/day, and 8% on $1/day, compared to 10% and 0.34% (yes, that’s right!) in Syria. In fact, the current standards of living in Syria were achieved in the much more statist era of of the 1960s and 70s. From 1980 to 2000, however, per capita growth ground to a halt, while state spending as a share of GDP DECLINED from 48% to 25%. In fact, by that measure the Syrian state is smaller than the ‘free-market’ USA, and smaller than all the developed European states. While corruption and clientelism need to be eliminated, as well as certain regulations and monopolies, in many respects Syria needs much MORE state activity.

“Adam smith realized this back in 1776. The difference between Mr. Dahi and me is that I agree with the above 233 year-old quote. He does not. His prescription is the same outdated policy of state-led development but that can now expand into a “meaningful industrial policy”.”

Ehsani pledged allegiance to a 223 year old hypothesis, while accusing Dahi of being ‘outdated’ in the next sentence! The famous Smith quote about the self interest of the butcher etc. is regularly raised by neoliberals as some kind of profound insight which can substitute for serious microeconomic analysis. It can’t. Smith was very smart, and said a lot of smart things, but his comment on butchers and baker tells us little about the complex mix of intrinsic and extrinsic motivations that drive work in various sectors of the economy. A great deal of work with a sound empirical basis has been done on these questions in the 223 years since Smith posited his hypothesis; Ehsani would so well to read something a little less ‘outdated’.

I agree with you about the danger of open market in Syria on the average or poor family.
The dilemma is that if you have protectionism measures, the quality of the products produced in Syria’s industries will remain mediocre as it it will not need to compete. Therefore the exports of such products would remain limited and stagnant. Competition is necessary to stimulate the know-how and trigger the improvement of the produces. This is usually what happens when an industry is privatized.
So protectionism is necessary but must be selective.

I am not self-employed myself and never have been. My employer takes the risk and commits the capital in the enterprise. It is only when the concern makes an acceptable return on capital that more hiring and higher wage and salary incomes can be expected. Without the risk takers who start businesses, people like me would not have a job.

Economic policy must do all it can to incentivize private business owners to profit, grow and hire more people like me and you. This is precisely what the debate is about. Rather than committing more resources and capital in the state sector, private industry must be the focus. Does this mean there is no role for the state at all? No. Indeed, it was Keynes who is credited with advising that governments dramatically increase their spending and investment after the 1930’s depression. This policy was also followed in Japan since the collapse of their real estate market. China did the same early this year. The U.S. responded precisely the same way following the recent crisis. This is sound economic policy. When C+I+X-M in the GDP formula freeze, G must step in to fill the void, otherwise growth will collapse further. Tactical response to a crisis through increased government spending is different than a strategic choice to make the state the leading producer and employer in a country’s economy.

China has a vast state sector with companies listed on their stock exchange. I have no problem if Syria were to decide to keep its beer making business under state control and to list their shares on the stock exchange. If they are able to survive and prosper against private competition and imports, I would be the first to cheer them on. But, they must not expect to lose money year in and year out and expect the Syrian treasury department to keep them on life support permanently. This is the case today. The money that goes their way on December 31st of every year is money that should have gone to the public schools, hospitals, roads, electricity grids, garbage collecting municipalities and infrastructure projects. Every precious cent that goes to wasteful government projects is a precious cent that could have gone to address some of the must-attend-to list of projects and services. Syria has not been a recipient of a marshal plan. It must do with the limited financial resources that it has. She cannot afford to plug holes in 250 businesses year in and year out.

SISYPHUS,

I have no idea who your source is. Local manufacturers are getting killed by Chinese and Turkish producers. Years of protectionism has done nothing but delay their inevitable fall.

ROBG,

The article that you attached on Egypt said the following:

“The GAFI report blamed official corruption, underdeveloped infrastructure, low literacy levels and lack of professional training for the shortfall.”

The report did not blame neoliberal economics, did it? It blamed official corruption, thanks to ridiculously low civil servant salaries. It blamed low literacy, thanks to woefully little investment in education and institutions of modern higher learning. It blamed the lack of professional training, thanks to backward and insular professional training schools that fail to produce a labor force ready enough to compete in the new global economy.

The 2nd image should be connected to its origin not that I didn’t appreciate the site use it (It’s a good Israeli site, I wish we create one in Syria to compete with it, I know very well that we have many knowledgeable and smart Syrians who can come up with a similar blog) but out of copy rights, Taras Kalapun, is the photographer, he shouls be the one getting the credits of this amazing photo and he has absolutely professional set of pictures he took in Syria, please check them out. They are super cool.http://www.flickr.com/photos/xslim/308450382/in/set-72157600963567065/http://www.flickr.com/photos/xslim/
Thank you

Ho Jung Changs’ book “Kicking Away the Ladder” is simply the best written on the subject. Just as the good professor claims. Government protection through the infant Industry argument, and other economic mercantilistic policies have played a seminal role; and will continue to; in the economic development of countries.

Let me however point out that in the same way that Neo-Liberalism is so 80’s and 90’s in promoting economic development og countries I would also suggest that the whole concept of economic growth and its promotion is so 20th century and must be reexamined seriously.

Civilization is facing its biggest challenge yet and the odds do not look to be encouraging. Climate change is more likely to reach a tipping point in a matter of years and not decades unless the obsession with growth, more production, larger populations and greater consumption is addressed seriously. The challenge is global and the impending disaster will spare no one. That is why we have to implement world wide policies to stabilize populations, cap physical production , reduce measurably our carbon footprint and redistribute wealth through a global tax.

We read at the end this rather funny statement: “Financial superstar analyst and former chief global strategist for Morgan Stanley, Barton Biggs, argues in Newsweek that Syria may represent “the next hot market.”

I am wondering where Morgan Stanley and others would have been without direct financial help from the US government (i.e. after robbing people of their money, they dare to take what’s left once again to keep on robbing them). And such pathetic analysts are described as superstar analysts!

Thanks for your answer. I fully agree, the job of capital is to take risks so that it can grow. But the job of the worker is to assist the capitalist in reducing the adverse impacts of the risk and in converting that risk into a realized profit. But, one of the major problems in our current “financial-industry” based economy has been the rapid movement of capital through a volatile stock market, which, in the US, has resulted in reducing much needed flow of long-term investment in what seemed then to be less competitive industries, and forced these industries to exchange capital inflow with cost reduction measures to remain afloat or to improve machinery. The first and easiest of these measures is workforce reduction with its massive social and economic impacts, especially at local levels.

True, free trade has given us better quality products at cheaper prices, and has fueled economic growth in some countries, but in the end, the foundation of our own economy, which was heavy industries is eroding by the day, not because our workers are lazy, but because we lack long-term investment to remain competitive and our corporates have to survive a daily roller coaster, or at best, the quarterly earning reports under short sighted light speed hit and run stock market .

From state point of view, capital growth that does not translate into improved living conditions of the widest segment of the population is meaningless and serves only to widen the gap between the haves and haves not. China is now focusing on improving the buying power of its citizenry, especially in rural areas because the next stage of their economic plan intends to gradually reduce reliance on exports and increase reliance on internal market to fuel continuing growth until a balance of the two is reached. This, according to Chinese policy makers, should relatively protect the country from the impacts of economic stagnation in the west and in other parts of the world. To do so, measures to discourage money outflow to external investment (especially in US real estate loans) are expected, and measures to increase internal investment in rural development will be greatly encouraged. I tend to believe that without internal growth in purchasing parity of the widest possible sector of the population, economic growth based on exports only will eventually collapse. Improving the purchasing parity of the upper class is useless, they can only consume so much, despite of their tendency for extravagance. We have argued before that to a large extent, the current economic and financial system, imposed since Reagan and Thatcher has resulted more in creating fortunes than in creating wealth. In fact, the average living standards are declining, not improving, except in few countries such as China, where the state has a long-term strategy and high control of overall economic policy, and in some eastern European countries, which had much lower standards to begin with, and which have benefited from substantial subsidies from western European countries in the form of cheap loans, aid, and long-term investments.

Selling state owned companies serves two goals. First, it reduces the bleeding from the state treasury, if these industries are losing money such as the case for some Syrian state-owned industries. That, i agree with 100%. But an unintended consequence is the removal of potentially strong internal competition to private businesses, which in turns would allow the private industries to continue producing mediocre quality products and services. Uncontrolled free trade will only replace this internal competition with foreign competition these businesses have no chance whatsoever to survive. The end result would be an outflow of Syrian money without having anything to make up for except for influx of tourism money, and few agricultural commodities and natural resources. None of which is a reliable and sustainable source of income at national level.

Just look at the intense debate around health care, where the public option is being vehemently opposed by those favoring a continuing mediocre, and occasionally evil service by a powerful health finance industry (not by health care professionals) without facing tough competition that would force them to assist health care professional in providing real health care services.

Now, over the past few years, Syria has been undergoing cautious, and as you have correctly and often said, too slow reform. In the meantimes, I am yet to see what has the Syrian as well as Arab and foreign capital been investing in. Hotels, resorts, supermarkets, restaurants, and services, all of which serve to build exactly what Professor Dahi has also correctly called facade of modernity …. I am yet to hear about a group of Syrian investors who would say, why not a computer chips manufacturing plant, why not a plant that manufactures solar cells, or wind turbines, not merely assembles them.

I recognize that any country attempting to achieve full self sufficiency is a country undertaking a fool’s errand. I recognize that economic policies in Syria are outdated and that many state owned enterprises are failing by most measures. But I want to say there must be a third option. I am perhaps the most schizophrenic of all SC commentators on this issue as I have learned to exchange the comfort of certainty with the sleep depriving doubt More than a year ago, i wrote that I do want to trust capitalism, but I can hardly bring myself to trust a capitalist. Without state intervention, strong regulation, they will likely go for hit and run strategy. Syrian businesses are well known for that. However, all regulation, quality standards, consumer protection, and labor protection laws are meaningless if corruption rules the day. As I said in a recently posted harsh مقامة , the wealthy in Syria are much to blame for corruption as the state is, they are the ones who made it a vehicle to obtain and retain power, to avoid paying taxes, to violate environmental standards, and they have much interest in maintaining the political status quo, but they are interested in demolishing whatever little protection the economic policies provides for the powerless??. In other word, they want to have it all. Theories are nice, but in practice, I can not trust them to run the economy benevolently. They care not about sustainable growth but about rapid wealth and unlimited access to power. Their fellow oligarchs have ruined the livelihood of Egyptians and of millions, if not billions others worldwide.

Dear Ehsani, there must be a third way, i know there must, and this debate is at the heart of the search of that concept, which to date remains illusive mainly because of the theoretical rigidity of the two competing Utopias.

Dear Ehsani
Both the size of the Pie and its distribution are important. If the top 20 percent of party goers get to consume 65% of the pie, and the lower 20% get to consume less than 3%, that leaves 32% for 60% of the party dudes in the middle. Who would have any interest in expanding the pie size, after all, you can expand it by 100% and the share of the majority, would still be marginal. This is where neoliberalism fails, as it focused on growing the pie, but with that, most of the pie ended up in the hand of a very few.

The more equitable distribution (notice no one is saying equal), the more interest everyone has in expanding the pie. The relationship between the current size of my share, and my interest in growing the pie itself as opposed to growing my share is one of the hardest element to quantify in game theory. Investment in services merely grows my share as others have to give me some of theirs for what they now think they need (more pepper), investment in growing the pie means that I have to wait for the delivery guy, something even the most ideal model of rational DM is reluctant to do, especially considering uncertainty in the upcoming pie size. We must recall that the top 20% struggles continuously to increase their individual share of the pie, meaning that they either have to get more from the lower ranks by selling them tasty, yet non-nourishing spices, or by significantly cutting down their own numbers. All of the above assumes that no one is using force to grow their share. Which is an issue largely ignored in game theory of rational decision making.

More than 70% of the jobs in the US are created by small business , and the top 10% of the people in the US in Income , pay more than 95% of the taxes so the rest of the people can feel that they belong even though everybody gets the same services and have the same opportunity , most people who owns their own businesses work 60 to 80 hours per week , so while some people are able to attend all their kids activities they are are working to provide for their families and their employees families .and if lucky they can attend some activity or rec idle,

Dear Norman
Off course, your numbers are right, and this is exactly what I was driving at. All I am saying is that they can not do what they do or survive without their employees.

As for the number of hours, I also agree. But that number is not restricted to those who work for their own. Most of the times I do 65 to 70 hours weeks, no overtime, and not even a long-term job security. In fact, American workers and professionals, be it self employed or employees work the longest number of hours. There is even a European airport joke, it says, look for those working on their laptops, most likely, they are Americans. And there is truth in that. In no airports in the world I have seen more people working than in the US. However, I have not been to Japan or China, not yet. Please note that that I wrote While most small businesses signify and dignify self employment,. How would I write such a thing if I did not hold small businesses, their owners, and their workers in such a high regard. I see my friends who struggle every day in these hard times, moreso than I do despite of recent salary reductions, and I have nothing but admiration towards them, but I know that without their workers, non of their dreams can come true. Those who treat their workers well, and share with them a reasonable portion of the profit, are the ones whom i admire the most.

The reason we American work the most and we are the most productive is exactly because we have no job security and for all who are self employed , they do not employ people if they do not need them to advance their business , the happier the employees the more the business will succeed , by the way my employees never had to ask for raises ,and we are very busy ,

After four decades of trying exactly what you advocate, 30% of the country’s population is under the poverty line. Running electricity and water are a rarity in the big cities. Corruption is rampant thanks to unbearable salary levels.

Running water problems in cities is a poor example for the benefits of the “free economy”. Around the world the water delivery is done mostly using the society owned “structures”. A private competitive model simply doesn’t work in that “field”. Let us assume that in a major city would be given the water delivery monopoly to 3 private companies so that each gets one third of the city. Company A would built an excellent delivery system with cheap prices, company B would built a minimum pipe system with maximum water prices and company C would build nothing but sell water with astronomical prices from tankers. The consequences would be that company C would be enormously profitable considering the needed investment, B profitable and A would need constantly new capital to build the new pipelines, water purifying and treatment capacity and its profitability would be negative or at best modest. On the city level the wealthy and industries would move to the A’s area and the poor would have to stay on B’s and C’s area and pay most of their income to water.

Professor Dahi is completely right that not a single country has risen among the wealthiest countries without protecting the own markets, building industrial capacity and infrastructure in regulated environment. EU countries and USA jumped to the “free trade era” only when their “packet” was ready for that.

Surely Syria needs fast to improve its economical situation and basis, but the notion that it can be best and fastest done by the utopia of neoliberalism offers is based on no real historical evidence. Syria needs first political system reforms, then a functioning legal system and national plan how to move forward. Surely the old Nordic social-democratic “example” would produce a better foundation than the a ultra-capitalist dream-world (which in reality doesn’t exist anywhere) framework.

——In Syria private hospitals are much more respected than public hospital, The art industry(T.V. Series) where goverment interfere less is florishing. while agrarian reform has been a failure,nationalization of industry by Nasser stifled investments

Of course the private hospitals are more respected than public hospitals. So is Rolls Royce compared to a present days T-model Ford. But the essential question is that can a privatized hospital system ever provide affordable healthcare for the whole population, which in the end is one of the main goals for any civilized government. The answer is no it obviously can’t. The US mostly privatized healthcare system is twice as expensive (over 16 percent of the GDP) than the public healthcare systems in Europe (about 8 % of the GDP). USA was on place 37 in WHO’s healthcare rankings (2000).

Comparing a super equipped private hospital to a more modestly equipped public hospital is almost as relevant as comparing a private Michelin 5 star restaurant to a factory’s or school’s canteen.

A state with good public school and free higher education system can produce a skilled labour force which is primary demanded for an industrial state. Much better equipped private schools and universities can educate only a tiny portion of the country’s population. There are numerous fields in a society where the private sector doesn’t provide no real broad solutions.

It is also worth discussing what private enterprise actually means. Is a agricultural conglomerate like Smithfield Foods Inc better than 100.000 smaller farms and meat producing companies? Surely it is more productive (= less people employing) than the less centralized option. Or the example of Wall Mart. Would Syria be a better place for Syrians if Wall Mart could build there next year 15.000 new markets? Or would slower a domestic solution be better?

– Syria’s cities, including Damascus, have no running household water for 12-16 hours per day, especially in the summer months.

– Over-extraction of groundwater has caused the water balance in five of Syria’s seven water basins to become negative, threatening agricultural lands to become dust, with horrific consequences.

– Food self sufficiency has not been achieved and is impossible to achieve, despite rhetoric to the contrary. Syria’s aquifers and rain waters of about 15 billion m3 per annum can feed 15 million people. Thus, Syria has been importing (quietly) some 25% of its food needs. As Syria’s population grows and aquifers deplete this ratio will grow.

– Food imports require foreign exchange, which Syria strains to find under the best of circumstances. Unless Syria succeeds in exporting more manufactured goods, essential imports will suffer. Oil exports are not likely to come to the rescue. These are more likely to diminish as existing oil reserves get depleted. It would be interesting to have an accounting of Syria’s oil income and uses over the past years.

– Water is not the only looming disaster. Electricity is another. Already, brown-outs are the norm in most cities. Tens of billions of dollars will be needed to ameliorate this situation.

With such a report card, Syria’s strategies of the past four decades have led to a poverty trap. If those strategies are not discarded the future will be even bleaker than the present.

Syria’s government should start allocating scarce resources based on a rate of return on investment criterion rather than on political expediencies or defunct ideologies.

Elie Elhadj free competition/privatization model doesn’t fit to water delivery and usage problems. Water production and delivery in most cases around the world, including major western countries, is done by society owned companies. Would a private company which has gotten the water monopoly in a major city want to invest hundreds of millions to excellent pipelines, water reserves, purifying and treatment if it would have the opportunity to earn much higher earnings with minimum investments? Of course not. Is New York’s water and sewer system run by several competitive private companies? No it is done in the “socialistic” way.

In Finland where the water is no “problem” in Syria’s style the private sector was and is fiercely against all environmental demands. Farmers would not like to reduce their fields near rivers and lakes by safety zones to keep the phosphorus of fertilizers out of those waters. Would any paper company invest to water saving processes and treatment if the legal system would not demand that? No they would not. When they were demanded they cried like babies for years. Now they brag how environmental friendly their factories are. 🙂

Free trade and private competition doesn’t give any solutions in it self to Syria’s water problems. Not in towns nor on the countryside. Only the governmental system can force the society to find solutions to water problems, not the utopia neoliberals are offering (an utopia which by the way doesn’t exist anywhere).

Syria’s GDP is not so “bad” measured in Geary-Khamis dollars. Emeritus professor Agnus Maddison has a on his page an interesting database (Statistics on World Population, GDP and Per Capita GDP, 1-2006 AD) in Geary-Khamis dollars.

(Do not put here the link, because I wrote before a long comment with some links which got lost in the spam filter).

Certainly many producers have taken a hit, particularly those who manufacture standard stuff like white cotton goods – these are similar the world over and therefore subject to price competition. Stuff that requires local taste can still compete. Also, I’m sure that both Chinese and Turkish producers have enjoyed the protectionist policies of their own governments over many years.

I was referring to producers of children’s clothes – the quality of local products is far better than it was years ago. This is reflected in the supply chain and the staff – businesses require other businesses to supply them and this takes time.

The point you are determined to avoid is that businesses the world over require some form of help to get going, at least until they are strong enough to compete with well established rivals. Are you suggesting that we should shut down our clothing industry and import everything from China?

There has to be some sort of profitable balance. In some cases, protectionism within the clothing industry has been harmful – manufacturers were not able to import cotton, for example, forcing them to use substandard and expensive government-produced local cotton yarn. But this was protectionism for a government industry not for the nation as a whole. You may argue that we should not be producing cotton in the first place as it wastes too much water and is bad for the soil and there are numerous alternative sources. But had commercial producers been allowed to spin their own yarn freely, whether imported or local, then the quality and price would be better today and our factories would be robust enough to compete.

As previous comments have noted, you’re throwing the baby out with the bath water. Unnecessary, hopeless and wasteful state enterprises, bad. Protection and promotion of local private sector with a view to export competitively, good. Particularly as our competitors have many comparative advantages, including the protectionist policies of their own countries.

Your talk of the absolute free market doesn’t bear much scrutiny. Boeing and Airbus probably got more in subsidies than the entire Syrian GDP per annum. What about American farm subsidies? Car manufacturers?? The market is already distorted.

Corruption and unnecessary red tape are an obvious problem, as is an intermittent electricity supply.

I think the most interesting practical question is how to make best use of our state industries? For example, could the current beer factory be converted into a feeder for local bottling plants? Could it brew and bottle for private brands? Could it be converted to a brewing promotion department concerned with practical training,science and marketing? Should it be retired? Should it be given to the staff who will be expected to compete in a free market after a limited period of support?

On a general note, what state industries can be given to their staff successfully? What ones are currently successful or well run? What ones need a little help? What ones are themselves victims of corruption but would otherwise be economically viable or are at least providing a reasonable service for the money?

My recommendations to Mr. Dahi is to do what ever he can to hold his safe and secure position in the academia. No one will pay him elsewhere for his day-dreaming.

By bringing the examples of what he thinks are success stories, Venezuela, Mr. Dahi showed his true color: Red.
For a government to be able to provide services, *income* is needed.
It will come from (a) heavy taxation of bussineses and (wide) middle-class,
or (b) natural recourses that sell for good money.
Syria isn’t rich in natural recourses and has no middle class to tax.

Ehsani rightly asks: “But who is going to pay for it?…
and in the comments section Ehsani adds: “…I would also appreciate it if the critics also offer their own specific solutions and how to finance them”. This is the whole story. Who is going to pay for Mr. Dahi’s Red agenda .?
.

Syria’s government should start allocating scarce resources based on a rate of return on investment criterion rather than on political expediencies or defunct ideologies.

Rate of return on investment criterion is not a very good system in solving those water problems.

Example 1
City’s water delivery system.
A) Modern pipelines, reservoirs, water purifying and treatment investment 800 million USD. Yearly fees 50 million.
B) One reservoir, water purifying + 100 tank wagons. Investment 50 million. Yearly fees 70 million (customers will pay what ever is asked, because they have no options).

Expamle 2
Chemical factory using much water
A) Water saving and purifying processes. Investment 100 million USD and the costs saved in water expenses yearly 5 million.
B) nothing is done to water systems and the 100 million is invested to more profitable businesses, yearly net profit 10 million.

It is 100 percent sure that private entrepreneurs would choose options B in both examples if they had that opportunity.

There seems to be too much ideology circulating (granted, economists need an excuse to get a paycheck) but if any of this actually worked as presented, no one would be having this debate to start with, certainly not “233 years” (or whatever the figure was) after Adam Smith.

The one comment I can personally identify most with is One from Off The Wall (22) I would surely vote for “Economics a la Carte”: pragmatism not ideology. There are too many examples and counter examples for almost everything, I can start with countering Norman’s position on the US being the most productive because “we have no job security” by saying the second most productive are the French with have no job insecurity and much shorter work hours, etc etc etc….

To respond to Ehsani’s “pragmatic request”; “what concretely can be done?”, here is something that I heard was circulating (I would love to take credit for it as being my idea but reality is a little different…): the idea is to have the government set up some kind of Sovereign Wealth Fund (if you wish to use the term) following the Bahrain Mumtalakat model (not the Abu Dhabi abd Qatari model) ie directed towards internal investments rather than external. The fund would be the vehicle for the state to invest in projects and economic interests in the country while still maintain “market practices”. The fund would manage the state participation in a number of projects, some that cannot be developed without an active state role, for example, take power as it is a hot topic these days.

(For comparison in AD or Qatar or KSA, the state has a min. of 40% hold in the IPP SPVs, with the rationale being maintain a control on the development process and also getting some income from the activity – it get canceled out with the payments the government makes to offtake, but it cuts down the subsidy in a sense.)

The fund would become an “off balance-sheet” vehicle for the government, so not much of a drain on the public accounts, but still a venue to make provide income. Intention is also to have it managed independently (under mandate with an international IB as I understood). A number of the state companies would be “sold” to the fund, and the managers would undergo a restructuring of these entities; those that make money could stay (or get partially IPO’d), the others would be divested from.

Obviously, 2 questions are raised here: (i) where’s the funding coming from, and (ii) how to deal with the “privatization” accusation?
For i, a couple of idea are being looked at, either mobilizing state bank deposits (supported by a govt. guarantee) or proceeds from a sovereign bond issued only locally to “small investors and savers”. For ii- I guess one can quote Francois Mitterand: “You need give some time to time” (faut donner du temps au temps).

we know that the Syrian government can not even organize trash collection , and in the seventies we used to stand in lines for hours to get bread or a canister of gas , i think the Syrian government is better off taking care of big projects , like uninterrupted electricity, clean water , good communication , Roads railroads , seaports , airports and provide liquidity in the market for financing , while through taxation play the silent partner that can adjust it’s share depending on it’s needs .

This site is crawling with pseudo-intellects, leftists. Please give us a solution to lift Syrians out of poverty!

Look at Lebanon, with all the wars, and political instability of the past 40 years the Lebanese person has a higher living standards than the Syrian. The Syrians were reduced to seeking menial work from their “brothers and sisters” in Lebanon.

The Baathisist institutionalized poverty, while the Lebanese embraces and encouraged entrepreneurs.

The issue here is neither drinking and household water nor who provides it; whether the private sector or the public sector. The volume of drinking and household water use is rather insignificant–typically around 10% of total water use and Syria is no exception. To put the volume of drinking and household water need in Syria in perspective, Lake Asad’s evaporation under the searing sun, estimated at 1.6 billion m3 per annum, is almost equivalent to Syria’s entire requirement of drinking and household water!

At issue here is how to allocate Syria’s 15 billion m3 of water from aquifers, rivers, and rain. Agriculture uses almost 90% of this volume.

Syria’s objective of achieving food self-sufficiency should be abandoned altogether because such an objective is impossible to attain, notwithstanding government misguided claims to the contrary. As I said above, Syria imports at present about a quarter of its foodstuffs requirement; quietly and without media fanfare. This ratio will grow as Syria’s population grows, even if the volume of available water remains constant, let alone getting reduced.

Syria cannot afford investing in irrigation projects because Syria does not have sufficient renewable water resources to sustain such projects. Syria should have stopped investing in irrigation projects decades ago. Indeed, it is agricultural water, not drinking and household water, that turned five of its seven water basins negative. If the volume of irrigation water will not be curtailed, it will only be a matter of time before non-renewable groundwater resources get depleted, with disastrous consequences to Syria’s entire society.

A World Bank study in 2001 concluded that Syria’s Government “will need to recognize that achieving food security … appear to be undermining Syria’s security over the long-term by depleting available groundwater resources.”

Syria should rely on rain fed agriculture, not irrigated agriculture.

May I suggest that you read my book on this subject: Experiments in Achieving Water and Food Self-Sufficiency in the Middle East. A summary is available on my website.

Dear Elie
‘Syria should rely on rain fed agriculture, not irrigated agriculture’
I strongly and politely disagree with you on this note, and I will ask OTW to back me up on my position.
Do you have any idea of the consequences of such scheme on the agriculture and farmers in Syria? It will be catastrophic.
As you know the problem is more complicated than that, there are many solutions to be considered before declaring our defeat in agriculture.
It is not a constructive idea to start with because we can do lots of work for improvement in water management field but we need the vision and the will to support it and to have a national program to educate people and especially farmers about the problem.
We did discuss the irrigation and water issue many times before so I won’t write a long reply, I’ll leave it open.
Thank you

Dear Elie,
I know about the water diminishing issue, it’s terrifying, but there are always solutions:
Wastewater recycling (water treatment)
Use dripping and water saving technologies for irrigation
Build Sea water disaltation plants
And keep the rationing use of water.
There is always something we can do that we are not fully doing right now and our farmers are still doing the wrong thing because no rules have been put in place, and no government principal care about the issue, they only care about how much money they can steal. It is a lethal combination of mismanagement, corruption, ignorance and climate change all together at once.
Please Elie, come back to the light…(lol)

Dear Norman,
I wrote the same thing last week about learning from Israel of how to conserve and rationally use our diminishing water supplies, and how to generate solar electricity from our wasteland, I wish that we have any other things to do but we don’t it is the only way we know about and the only tested policies that worked so far.
What I’m having problem and highly agitate my is WHY this Syrian un-respected government are doing nothing in that direction.

You claim that I am determined to avoid the notion that businesses require help to get going. I already answered that. Local producers were protected from outside competition for decades already. Is that not enough? Remember, when you hand out to peter, you have to rob Paul. Local producers benefited while the Syrian consumer was stuffed with inferior products. If protection were to be offered, it must come in tax and fee incentives to exporters who can help the country gain foreign currency reserves.

You wonder how one should make best use of our state industries.

The answer is, sell them.

The reason they don’t is because some of those were confiscated from their private owners. When you sell them, those owners are likely to ask for their businesses back. The other reason they don’t sell them is that they will have 2-3 million people thrown out in the streets. This is not a smart political move. The monster that has been created cannot be tamed without pain. Hard choices must be made. No one wants to pull the trigger even though they all know that they are defending the indefensible. Last but not least, many fear Russian style theft of the state when these companies are sold. This is a lame excuse. Many countries have disposed of state assets in a highly transparent and professional manner. Turkey is a prime example. Just because some countries mismanaged the process does not mean that we are stuck. The Syrian government is confused. It knows the math and is aware that the numbers don’t add up. Yet, they pretend that a solution other than privatization is around the corner if only they can do this or that. The reason they made an exception and handed cham holding the electricity venture is because they realized that the public cannot take the shortages anymore.

Nicolas92200,

Nice one, if only Syria had any wealth to place in a fund.

As I said above, if the government had the funds, they would have bought a new electric grid themselves. They reluctantly decided to allow Cham holding to do it so that they don’t have to cough up the precious cash.

Why is the word “accusation” used in privatization?

Were the leadership to explain that the government can no longer support losing enterprises making biscuits, tires, beer and refrigerators, I doubt that the Syrian public will march in the streets in protest. The government must explain that the reason why the fuel subsidies have been scaled back is because they cannot do that and support 245 losing enterprises at the same time. Something has to give. Remember, every project or idea that one proposes needs to be funded from somewhere. You can either tax your public; borrow from them or from overseas or print money by debasing you currency.

Elie Elhadj is one of the most thoughtful and informed individuals on the water shortage crisis in the region. Those that have not read his research are well advised to do so. Any learning that I did on the subject was because of him.

May I throw some empirical and historical context into this debate, which has been cast as being between neo-liberal and statist models of development. The roots of Syria’s state sector were laid down during the UAR period, during which Syria had the misfortune to fall under the most doctrinaire phase of Nasserist state socialism. Nasser backtracked as early as 1968, and Sadat started the very slow process of rolling back the state’s domination of the Egyptian economy in 1974. The state sector is still a powerful part of the Egyptian economy to this day, but the contribution of Egyptian and foreign private investment to the relatively rapid growth in production of goods and services in recent years has been of critical importance. I would argue that Egypt would be in much worse shape today without the reforms that have been enacted over the past 35 years, and in particular in the mid-1980s, mid-1990s and since 2004.

Syria’s recovery from its damaging encounter with Nasserism has been much more limited, although the successive Assad regimes have shown little ideological affinity with state socalism. Hafez al-Assad made accommodations with Syrian merchant families in the 1970s and 1980s, and kicked off his own version of “open door” policy in 1991 with Law 10. Hafez al-Assad also recognised that the Barcelona process, under which the EU Association Agreements fall, provided a means for his government to sketch out an economic reform programme with the help of European finance and technical assistance. The decision to allow the establishment of private banks and a stock exchange was taken towards the end of Assad senior’s rule, and this has resulted in the rapid expansion of Syria’ financial services industry over the past few years.

It is thus nothing new for the Syrian government to recognise the validity of some neo-liberal ideas. The difficulty has been the hesitancy with which reform has been pursued. This can be ascribed to various factors: politically generated finance from Arab states, Iran and (in the form of weapons effectively free of charge) the Soviet Union, which alleviated the pressure for reform; vested interests in the state and Baath party that were resistant to reform; rent-seeking behaviour from privileged economic elites closely connected to the centres of power.

The Bashar al-Assad government has made some limited progress towards creating the conditions for the Syrian private sector to become an effective engine for sustainable growth and job creation. It is likely to continue to try to build on these achievements through further gradual steps. Ehsani and his supporters are right to be concerned that this is all far too little too late.

The issue here is neither drinking and household water nor who provides it; whether the private sector or the public sector.

Elie Elhadj I am somewhat confused. I suppose that the issue of this discussion was originally neoliberalism and economical reforms, not Syria’s water problems ipso facto. You mention in your comment rate of return on investment on water policy issues, you mention cities and agricultures water problems and you praise a man advocating neoliberal economical policies. Of course it is relevant who can solve such problems and who has solved those water “problems” in other countries. Public or private sector?

One thing is clear that free trade, privatization and foreign investors do not solve Syria’s water problems. Governmental and communal legislation and ordinances will make the change like they have done everywhere else. Companies and entrepreneurs invest only in environmental “processes” when they have no other option than to do so. So is it in USA, China, Finland, Israel and Syria.

In cities the water system is as said run mostly by public sector. The privatization “tests” in Bolivia and Argentina advocated by IMF and World Bank have been stopped. In England the water privatization led to the increase of tariffs (+46 percent in real terms during the first nine years and to increase of companies operating profits (+ 142% percent in the first eight years). It is also relative easy to privatize in developed country a water system which is modern and ready. Helsinki and the City of New York could easily privatize their ready water systems, though I suppose that after 10 years we, the customers, would not see that move as a very brilliant idea. Surely numerous businessmen and companies would want to buy such lucrative monopolies and investment bankers would love to organize such deals. 🙂

In undeveloped countries like Syria the situation is completely different. The investor would have to build (= to invest) much to the package. Most certainly that would lead to unaffordable water prices if the investor wants a decent return for the investment. That would naturally hurt the development of the society. So the equation is complex on national level.

Surely I do understand your points of the Syria’s water problems on the level of problems. However I do not understand how those problems can be solved be solved without a public sector’s plan, general attitude change and a considerable amount of laws, regulations and monitoring. The change will cost billions and take decades. The hypothesis that Syria’s economy can suddenly afford those billions and foreign investors flock to Syria make those investments is rather absurd.

Let us also remember that big multinational companies often put their new factories with “risky” processes to countries where is no or primitive environment protection regulations. The answer to why is natural, because they get because of the smaller investments a higher return for the investment.

[…] officials using the TINA argument to corner their critics and to discredit their opinions just as Ehsani tried to do with Dahi’s comment. Let me be very clear here. The TINA argument is totally unacceptable. When […]

Thank you all for a very interesting discussion. I will try not to repeat myself and to focus on the substantive
issues raised by Ehsani’s reply. I apologize for not joining in earlier, but from reading the comments made here I can see several interesting and valuable interventions by others. I’ll try not to repeat those either and I apologize if this comes off as written in haste because it is:

1. “The sad news is that he offered no real solutions.” This is perhaps legitimate, although I think I make the case for an industrial policy.
Having said that, this is a case of the pot calling the kettle black. As Carlos-Diaz Alejandro famously said,
neoliberalism is not a development model, it’s the negation of a model.

2. “If Mr. Dahi is right that “most” of us would want just such a job (I know that I do),
we must find a sucker that is willing to pay for our risk-free salaries and benefits and also our retirement.”
I’m baffled by this comment. First, I am glad that Ehsani agrees with me that most people do not want to be entrepreneurs. However,
I am not sure why he sees wage-labor as equivalent to sinecue. Moreover I did not argue that everyone should be employed by the
state. I have to say I do not get this critique: all of capitalist industrial development was based on wage-labor; were all those
employers suckers? Or perhaps you see all those workers are insignificant: it’s the bosses who produce, not the workers.
If that’s the case our disagreement may be bigger than I thought.

3. “He of course conveniently forgets to talk about where these countries are today precisely because they followed and stuck to those “neoliberal” policies. Brazil..”
This statement by Ehsani is supported by everything except the empirical and historical evidence (that I already cited some
and won’t repeat). My comment and the literature I referenced shows that the precise opposite of what Ehsani is arguing.
I just returned recently from the Southern Cone where I spent the months of June through August researching the Southern Common Market (Mercosur). Argentina and Brazil (along with Paraguay and Uruguay) signed this agreement in 1991 and the gap between them since has skyrocketed. If i was to identify one major difference between the two it’s that Brazil remained committed to a national industrial policy. I happen to have interviewed a wide spectrum of people in Argentina and even the most committed neo-liberals (someone who was still calling for a NAFTA style agreement for all of of the Western Hemisphere) acknowledged as such. Studies of Brazilian
industrial development and state support can be found in some of the literature I cite including Amsden. Peter Evans has written a lot about this. See
his articles. His book Embedded Autonomy: States and Industrial Transformation (Princeton, NJ: Princeton University Press, 1995) is a must
read on state-firm relations.

4. “Hugo Chavez has squandered his country’s…My thoughts on this experiment were detailed in a dedicated post here on this forum”

5. Finally, to avoid any confusion, I didn’t make any arguments that there is no role for the private sector, or that the state should own all industries, etc. Most
of the states I refer to as success stories could be described as having undergone state-led capitalist development. However the lines between the public
and private sector were rather blurry. The point is that there was a serious commitment to industrial policy.

6. Ehsani makes other points on the need for job creation, etc. etc. To risk repitition and try to simplify the main argument: Ehsani’s prescriptions will not get us to where he wants us to go,they will lead us to a situation even worse then we are now.

[…] An opening up of the economy, coupled with a structural shift from state -led to private sector led development, as well as the lifting of barriers for private initiative domestically as well as trade and capital flow barriers …. Finally, there is the fetishization of the word “reform,” giving it an independent existence outside of space and time. The problem is that Ehsani and others (including some Western scholars writing on Syria) suffer from what Dani Rodrik calls …Click Here […]

[…] The bad blood and policy disputes between al-Reddawi and Dardari had long since broken into the open. Reddawi was an outspoken critic of Deputy Premier Dardari and the economic policies he put into place when as head of the SPC. Dardari was the architect of the last 5-year economic plan. While Mr. al-Reddawi has launched a series of seminars on the economy lately, his attacks on Mr. Dardari were made public in October of 2009. Syria Comment translated and commented on al-Reddawi’s “51 point critique” of the liberalization process, which can be read here. That post triggered a debate between Dr. Omar Dahi, an economics professor at Hampshire College, and me about the virtues and vices of “neoliberalism” and Syria’s economic reform, which can be read here. […]